Negligence Actions Against Pension Fund Managers - Unilever Superannuation Fund v. Mercury Asset Management plc

Negligence Actions Against Pension Fund Managers - Unilever Superannuation Fund v. Mercury Asset Management plc

Pension fund litigation does not usually grab the headlines, but it has certainly received significant attention in Unilever Superannuation Fund v. Mercury Asset Management plc. Perhaps unfortunately for the industry and its advisers, this case settled - during the trial in the High Court but before judgment. It had all the makings of a claim that would have given valuable guidance to those involved in fund management, and would either have given them comfort that professional negligence actions against them were going to continue to be rare, or would have sent everyone rushing to examine their client agreements to see what could be done to lower the risk of claims.

As it is, we are left to speculate what might have been. All claims of this nature are in large part dependent on their particular facts. Thus it would be wrong to deduce from the fact of settlement too strong a conclusion about the likelihood of liability in other cases.

The Unilever v. MAM litigation

Unilever claimed 130 million in damages on the basis that 1 billion of its pension fund assets had been negligently mismanaged. MAM started to manage the fund in 1987. A document was produced setting out the Investment Benchmark, Objectives and Guidelines which applied from the start of 1997 and which were to be included in a new Investment Management Agreement.

The benchmark was specific for this fund and set by reference to a number of factors. The Investment Management Agreement provided that MAM had to maintain the market exposure of the fund within permitted ranges. In normal circumstances, the return was expected to be no more than 3% below the benchmark in any period of four successive calendar quarters.

The Investment Management Agreement provided that in carrying out its duties under the Agreement, MAM should at all times comply with the terms of the Agreement, including the specific restrictions set out in the Investment Guidelines and Annexures. The Investment Objectives were to achieve a return on the fund in accordance with the Investment Guidelines (which were set out in an annexure to the Agreement).

The Investment Management Agreement also provided that MAM should exercise the highest standards of care and expertise in carrying out its duties and fulfilling its obligations under the Agreement. This, it was said, included the obligation to use the highest standards of care in managing the assets with the object of both achieving the target return and not breaching the downside tolerance.

It is important to note that it was not alleged that MAM guaranteed that the downside tolerance would not be exceeded. MAM only had an obligation to use care...